Retirement Plan Rollovers

If you are one of the 75 million baby boomers that is quickly approaching retirement and has a retirement savings plan with your current employer or perhaps still has assets from a plan from a previous employer, you may want to consider rolling these retirement assets into an IRA. To maintain their tax-deferred status, retirement plan assets can be transferred directly into an IRA or rolled over to an IRA within 60 days of the distribution.

There are many reasons to consider a rollover rather than simply withdrawing the money from your retirement plans or keeping the funds in the employer- sponsored plan. Some of these reasons include:

• Wider Range of Investment Options: Most employer-sponsored retirement plans limit the funds that you may invest in. Although these limited funds may allow for proper diversification, similar funds that are not offered may provide better returns.
   

• Professional Management: Rolling your assets to an IRA reduces the management burden by allowing your financial advisor to oversee the investments and provide advice.
   

• Accessibility: Accessing your savings through your financial advisor is often quicker and easier than the process required to access funds through a retirement plan sponsor.
   

• Lower Expense Ratios: By having full control over the investments in an IRA, you can be fully aware of the expenses you are paying for your investments. Often the annual expenses of funds in an IRA are lower than the funds in a retirement plan.
   

• Consolidation of Accounts: Organization and management of your funds are simplified by the possibility of combining them into one IRA. This can also help to lower fees.
   

• Early Withdrawal Opportunities: Rolling your retirement assets to an IRA allows you more opportunities to access your money before age 59 1/2 without being subject to the 10 percent early withdrawal penalty. In addition to the opportunities that exist in a qualified retirement plan, there are several others including the following:

  • Qualified first-time homebuyer expenses
  • Qualified higher education expenses
  • Health insurance for an unemployed individual
  • Better control when establishing substantially equal periodic payments
     

• Improved Post-Death Distribution Options: Unless Congress passes legislation to the contrary, employer-sponsored plans are not required to offer non-spouse beneficiaries the option of rolling the plan into a beneficiary IRA. However, if you roll over your retirement plan assets into an IRA, you can assure that beneficiaries are properly designated. This will provide them with the option to maintain the tax-deferred status of these assets and stretch the distributions over their lifetime.
   

• Maintain the Tax-Deferred Status of Retirement Savings: Withdrawing assets from your retirement plans results in the entire amount of pre-tax assets being subject to income tax if you do not transfer the account into an IRA or other qualified retirement plan. There may also be an additional 10 percent early withdrawal penalty if you are under the age of 59 1/2 (55 if separated from service).

Along with these reasons to roll over retirement plan assets to an IRA, it is important to note that leaving assets in an employer-sponsored retirement plan has certain benefits that are lessened or not available in an IRA. In an employer-sponsored retirement plan, you may have the ability to take a loan from your savings whereas you would not in an IRA. However, this loan option is only available if you are an active participant in the retirement plan.

If you are between the ages of 55 and 59 1/2 and separated from service, you are able to take distributions from your employer-sponsored retirement plan without being subject to the 10 percent penalty. If this is the case, you may want to consider leaving part of your savings in your employer-sponsored retirement plan to enable penalty-free withdrawals until you are 59 1/2.

Please remember that everyone’s situation is different and you should always consult your advisor before making any decisions. If you would like to learn more about how a personal IRA can benefit you, please contact our office at 412-258-1101.

Kevin C. Krul is First Vice-President and Financial Advisor with Hefren-Tillotson. He may be reached at 412-258-1101 or kkrul@hefren.com. The Wexford office of Hefren-Tillotson is located at 4001 Stonewood Drive.